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Don’t Get Too Close to the Bubble, Lest you Get Caught in the Burst

16 May

When I graduated high school in 1970, nearly 40% of H.S. grads continued on to college. It was considered a necessity to finish high school, probably justifiably, and there was already a good bit of propaganda circulating about a college degree being necessary if one hoped to land a “good” job. That 40% is now over 70%. Is that a sign of a more educated society? You be the judge.

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The last three years of my public school, I was working for $1.00 an hour, and glad to get it. I worked an average of 50 hours per week, and gas was only about 36 cents per gallon, so I was feeling fairly flush.

Unfortunately (depending upon your point of view), it was the sixties, and free love and Timothy O’Leary got a lot more of my attention than my textbooks. I wasn’t terribly motivated during my senior year, and my grades fell dramatically. Any hopes I (my parents, actually) might have had of a scholarship went up in smoke, so to speak.

Still, after getting an extraordinary education, courtesy of the U.S. Navy, I was able to get a decent job after my discharge, and worked my way up to a nearly $250K annual income. Many times, I chuckled about my high school counselors singing their doom and gloom song about my future, if I didn’t knuckle down and get that sheepskin.

Finally, though, in the mid-80s, I did hit a wall, and was told that the company just couldn’t have a vice-president of marketing with only a H.S. diploma. So I left, and went back to school. Let me tell you, being the only 30-some year old in a college classroom leaves a lot to be desired. I think most of my professors were younger than I was.

That time around, I thoroughly enjoyed the studying, though. So much so, that once I got my BS in engineering, I decided that I’d get a short-term job and go back for my MBA. Surprising everyone, including myself, I did just that.

Most of my bachelor’s degree studies were funded by my G.I. Bill, thanks to my eleven years in the Navy. My costs consisted of only living expenses. When it came time to return for my business degree, however, everything was out of pocket, as I’d long since exhausted my G.I. benefits.

Before finishing business school, I already had an offer, starting at $200K, so I felt like I’d wasted a lot of years. If only I’d gone to college right out of high school, instead of a couple of years of vacation in Southeast Asia. 😉

But my perspective changed, once I found myself in a management role. Young college grads brought nothing to the table but buzzwords and stylish haircuts. Their lack of experience left the majority of them severely lacking the bare essentials for survival in business. And amazingly, when discussing basics with them that I had studied at my university, I found that most of them had been exposed to almost nothing of practical value. Statistical analysis is critical for some positions, but not for those I was trying to fill. Hell, most of those kids STILL hadn’t ever learned how to balance their checkbook!

I also found that the majority of them had been forced to take out student loans, usually with their parents as co-signers, in amounts that seemed to me to be intimidating for someone just starting a career. $25K was a typical number, as I recall, and around 5 years to pay it back. Five or six hundred dollars a month was enough to keep most of them in a shared apartment.

I thought then how fortunate I was that between the Navy and my savings, I’d been able to pay my own way, and not be saddled with that sort of debt. In those days, $25K could buy a decent house. In fact, that’s exactly what I paid for my first home.

Shoot forward a few years… about twenty. Last year a client asked me to write a feature article on higher education in the U.S. A little research left me reeling in shock.

One resource I stumbled across during that process was the National Inflation Association. I signed up for their newsletter then and still get it regularly. A couple of weeks ago, they announced that they were releasing a documentary entitled “College Conspiracy”, and offered a preview. That preview sparked my interest, as it delved deeply into some bits of “common knowledge” that I had long suspected of being fallacies.

Today, I got to view the entire film, and I can’t begin to paint the picture as well as their film does, but I will share just a few verifiable statistics with you.

  • Today, a public 4 year college charges an in-state student an average of $7,020 per year in tuition and fees.
  • For out-of-state enrollees, add an average of $11,528 surcharge per year.
  • A private 4-year college charges an average of $26,293 per year in tuition and fees.
  • In any of those cases, you can figure on spending around $200 per textbook. That’s triple what it was a decade ago.
  • The typical 4-year degree in the U.S. has a total cost of more than $460K. That doesn’t include textbooks or living expenses. I know –  that doesn’t match the numbers above – watch the film to understand the difference.

I could go on and on, but if you trust my recommendations at all, then please do yourself a favor and watch this movie…. especially if you or someone in your family is planning to attend college. It may be the most educational hour you have spent in a long time.

View “College Conspiracy” now.

Wall Street Lies

22 Apr

Just about the time I figure that they’ve breached all possible levels of malevolence, the greedy bastards prove me wrong… again! You’d think I’d learn!

First, Wall Street, embodied by the multi-billionaire club that makes it move and shake, reassured us that the real estate market was sound. All the while, of course, they were rapidly shifting their own financial resources between toxic Collateralized Debt Obligations and whatever other ponzi scheme they could find (or create) at the moment. Result: Lies, which brought millions of Americans to the point of losing their homes.

Next, as concern grew about how sound the banks were, Wall Street, backed by Bernanke and Paulson, told us that the banks were solid, with healthy capital ratios. Result: Lies, which cost American investors (little guys, like you and me) billions, along with their dreams of retirement.

Soon thereafter, we were assured that the Market was still a sound investment vehicle, and that we could trust them to care for our money as though it was their own. Result: Lies, as our money soon, in fact, became theirs.

Now, they tell us that we are in recovery, and that our economy will soon be stronger than ever. This, in spite of the fact that nearly every reputable economist in the world is saying either that we haven’t yet hit bottom, or that we can’t possibly predict, because we are dealing with an entirely new sort of economy (more on that, in a bit). The Fed (talk about a misnomer!) has its printing presses running full-tilt, and has more than doubled the amount of American currency in circulation since September, 2008! In very simplistic terms, that means that they have effectively halved the purchasing power of the dollar by that action.

They may be greedy… they may even be evil… but they are NOT stupid! They KNOW what the results of their actions will be! They are simply capitalizing on their knowledge of events to come, and making as much money on it, as possible.

They justify their actions by showing that they are practicing sound economic manipulation, by following Keynesian theory. That theory has long been the most proven, trusted method of foreseeing economic events, and forestalling them. Basically, it says that “government spending should offset the fall in private spending during an economic downturn; otherwise the fall in private spending may perpetuate itself and productive resources, such as the labor hours of the unemployed, will be wasted.” What they DON’T tell us is that Keynes was quite clear on the fact that the money spent by the government in such an endeavor must be borrowed from the private sector, in order to add money to it. Buying power cannot be simply created by a snap of the fingers… or a run of the printing presses. I.O.U.s are not worthless, because they are backed by a promise. Payment in gold, goods or services bring value back to the holder. But the dollar, taken off the gold standard by Nixon, is backed by nothing. It’s a piece of paper, and not even really large enough to make it worth taking to the toilet with you.

The other aspect that makes the Keynesian theory obsolete is that it was developed around existing encapsulated economies. Short of a few small island nations, however, no such economies still really exist. We are all now part of a GLOBAL economy. When it fails to rain sufficiently in Indonesia, the cost of coal may climb in the US. And between those two points, there will also be increases and decreases in the costs of a number of totally unrelated products and services around the world. The adage, “No man is an island” was never more true.

Most prominent economists have recogized that Keynes’ theory doesn’t really apply in such an environment, and many are fervently trying to develop a replacement strategy. As yet, none have ventured to say they’ve got a clue. It’s a whole new ballgame, and it’s made infinitely more complex by the disparity in GDPs, purchasing power, consumer density, geography, cultural differences, etc. It’s not even a sure bet that there IS a reliable theory to replace that which used to serve so well.

To make things just a little more interesting, our government has increased our national debt by so much that most Americans can’t even grasp the significance of it. Most of us weren’t taught in school to deal with that many zeros in our numbers. Billions or trillions… they’re both just REALLY BIG numbers to us. And those numbers are tossed about by the media and the government so casually, that they’ve even lost some of their shock value. And all while the Fed was making our dollar worth less than the paper it’s printed on. Coincidence?

One thing that most economists agree on, is that there is a very real risk of serious inflation… possibly even hyperinflation… as a result of all this mad printing of fiat currency. I can just see $60/Lb coffee around the corner!

So, will we ship a freighter full of greenbacks off to China, to pay off our debt to them? I’m sure they’ll be thrilled to receive one cent on the dollar (or less) in payment for having financed our war efforts. Should spark some interesting conversations on that red phone in the Oval Office.